Understanding the Risk When You Place Your Child on Your Joint Bank Account

Sometimes one of the biggest mistakes our clients make when they set up a bank account(s) is that they make the account a joint account with their son or daughter. They do this because they are worried that something might happen to them, and in the case of an emergency, his or her child will have access to the money to pay their bills and to take care of them. This type of joint account is often called a “convenience account”. While this may be a good idea for many families, it can have particularly dangerous consequences for your financial welfare and estate plan in the future. The reason for this is found a New Jersey law called the Multiple Party Deposit Account Act, which I discussed in an earlier blog. If multiple parties have their names on the account, N.J.S.A. §17:16I-5 requires that the account be treated as a joint account. This means that anyone who is named on the bank account and survives you becomes the owner of the money left in the account. The money does not go to your estate. So if you planned on giving your estate to all of your children equally, the end result will be that only the child whose name is on the bank account with you will get the money in the account.

Fortunately, if this mistake occurs and you die before correcting it, the law has a limited way to remedy the situation. But it often involves litigation. The Act says that if there is clear and convincing evidence that you did not intend a joint account it will be treated as a convenience account. It is often a tough case to prove, particularly when you die and cannot tell the judge your intentions, but there are two ways to show you did not intend to give the child the money solely. The first way to do this is to demonstrate that the child created a confidential relationship with you whereby they took care of your finances for you. So for example, if your child was/is handling all your finances, including driving you to and from the bank and executing checks on your behalf, it can be said that a confidential relationship was formed between you and your child such that you were influenced to jointly add your child’s name to the bank account.

But the other way to go about showing you did not intend to make your child the sole owner of the money in the account goes back to the purpose of why you created a convenience account. The courts understand that often a loved one is placed on the account of another for the purpose of handling the loved one’s financial affairs in the event of incapacity and/or poor health. But to win you must prove it and the standard to prove it is high. Without that proof, a court is likely to say that the money belongs to whoever is the joint account holder. In one case I recently read on the matter, Sadofski v. Williams, 60 N.J. 385 (1972), the daughter testified that the mother put her on her bank accounts in case something were to happen to the mother. The mother handled her own finances without participation from the daughter until the mother went to the hospital, where the daughter then testified that the mother instructed the daughter to withdraw the remainder of the money out of the account herself, as it was her money. The Court concluded that the daughter’s testimony that she was put on there as a fail-safe should something happen, along with the mother handling her own finances, meant the daughter was only on there for convenience purposes and the money therefore did not belong to her solely, but rather the estate of the mother.

The controversies around joint accounts can be avoided if you put in writing that you wish to have your child on your account solely for emergency purposes. If you are considering doing this, make sure you communicate this intention with the bank, and ask for a form that everybody can sign off on stating this is your intention. The Supreme Court in Sadofski chastised the bank for not doing this, noting how banks do not fully comprehend the law regarding joint accounts and the significance of placing other people’s names on the account. You now understand the significance of doing this.